Tunisia’s economy is expected to grow moderately in 2015 and 2016, supported by increased demand from the eurozone.

Middle East and North Africa economies

Atradius STAR Political Risk Rating*:

Algeria: 6 (Moderate-High Risk) - Positive

Egypt: 6 (Moderate-High Risk) - Negative

Jordan: 5 (Moderate Risk) - Negative

Kuwait: 3 (Moderate-Low Risk) - Stable

Morocco: 5 (Moderate Risk) - Positive

Saudi Arabia: 3 (Moderate-Low Risk) - Negative

Tunisia: 5 (Moderate Risk) - Negative

United Arab Emirates: 3 (Moderate-Low Risk) - Positive

* The STAR rating runs on a scale from 1 to 10, where 1 represents the lowest risk and 10 the highest risk.

The 10 rating steps are aggregated into five broad categories to facilitate their interpretation in terms of credit quality. Starting from the most benign part of the quality spectrum, these categories range from ‘Low Risk’, ‘Moderate-Low Risk’, ‘Moderate Risk’, ‘Moderate-High Risk’ to ‘High Risk’, with a separate grade reserved for ‘Very High Risk.’

In addition to the 10-point scale, rating modifiers are associated with each scale step: ‘Positive’, ‘Stable’, and ‘Negative’. These rating modifiers allow further granularity and differentiate more finely between countries in terms of risk.

For further information about the Atradius STAR rating, please click here.

Tunisia

Political situation

Head of state: President Beji Caid Essebsi (since December 2014)

Head of government: Prime Minister Habib Essid (since February 2015)

Form of government: Coalition government of secular and Islamic parties.

Population: 11.1 million (est.)

A rather smooth transition to democracy, but many problems persist

Looking at the outcome of the so-called ‘Arab Spring’, Tunisia experienced, a smooth

transition towards parliamentary democracy. In all other affected Arab countries, the civil uprising and mass protests have either ended in civil wars (e.g. Libya and Syria) or suppression of the uprising by the military and old elites (e.g. Egypt).

In Tunisia, the October 2014 parliamentary and presidential elections were peaceful. A four-party coalition is ruling the country since the beginning of 2015. However, this broad coalition government is prone to tensions and difficult decision making as it consists of both secular and (moderate) Islamist parties. The new government faces enormous challenges in improving social and economic conditions, as unemployment is still very high and a failure to improve general living standards could create social unrest again. The Tunisian economy has become more fragile since 2011, and like other countries in the region, the country has a large pool of unemployed young men who may be susceptible to radicalisation.

The internal security situation remains very unstable, as was proven by two major Islamist terrorist attacks, one in March 2015 in Tunis, and one attack on a seaside resort in Sousse late June, with many tourists killed. The risk of additional terrorist attacks remains high. It is estimated that some 3,000 Tunisians have fought or are still fighting for IS in Syria and Libya, and some of them returned home, posing a high security risk. Tunisia remains negatively affected by the on-going civil strife in neighbouring Libya.

Economic situation

Will growth be negatively affected by decreasing tourist arrivals?

The economy is expected to grow moderately in 2015 and 2016, supported by increased demand from the Eurozone. GDP grew a modest 1.7% in Q1 of 2015. However, after the recent terrorist attacks it seems very probable that tourist arrivals (which have just improved in 2014) will decrease again, which would negatively affect the economic recovery after the transition to democracy. Tourism is a very important factor for the economy, accounting for about 7% of Tunisia’s economic output and employing about 15% of workforce either directly or indirectly, according to the International Monetary Fund (IMF). It is also one of the country’s largest foreign-currency sources.

The budget deficit is large (4.5% of GDP in 2014) due to increased social spending and investments. However, it is expected that lower oil and food prices will relieve government finances in 2015 and 2016. The exchange rate of the Tunisian dinar has depreciated sharply against the US dollar since May 2014 (by approximately 20%). The persistently high account deficit should continue to trigger downward pressure on the dinar.

Tunisia ́s foreign debt is expected to increase further, to 61% of GDP and 131% of export and services in 2015. Short-term debt in relation to international reserves was high in 2014, at 88%. Tunisia has a high external financing requirement, and the country receives major financial assistance from the IMF, World Bank, European countries and the US. It is expected that this support will continue, as international donors want to bolster the on-going transition process towards a stable democratic system and to avoid a spill-over of radical Islamism from Libya.

More structural reforms are necessary to accelerate economic growth and to reduce the high unemployment. Tackling bureaucracy, reducing corruption, reforming the tax and subsidy system are necessary to improve the economic conditions. However, given the current political and social conditions, it seems that progress will remain slow for the time being.